By Taiga Uranaka and Mike Stone
TOKYO/WASHINGTON (Reuters) - Japanese insurer Sompo Holdings Inc (T:8630) said on Wednesday it will buy U.S. property and casualty insurer Endurance Specialty Holdings Ltd (N:ENH) for $6.3 billion, the latest in a string of acquisitions by insurers starved of growth in ageing Japan.
Japan's insurance companies have been aggressively buying U.S. businesses, announcing a slew of multibillion-dollar deals as they seek to expand beyond a rapidly maturing home market - with the exception of Sompo, which lacked a significant U.S. foothold.
Sompo, the nation's third-largest property and casualty insurer with a market value of $12 billion, said it has agreed to buy 67.7 million shares in Endurance Specialty at $93 each, a premium of 40.3 percent against the stock's average price since July.
Chief Executive Kengo Sakurada said at a news conference the premium was not high given the premiums paid by other Japanese insurers in overseas deals. He also said Endurance's management, including Chief Executive John Charman, would remain in place.
"We want the current management to stay, so we are paying for a control premium," he said.
The deal is the second-largest ever by a Japanese insurer, after Tokio Marine Holdings Inc's (T:8766) $7.5 billion purchase of U.S. insurer HCC Insurance Holdings Inc last year. Tokio Marine paid a premium of 35.8 percent.
Endurance, which has a market value of $6 billion, focuses on underwriting speciality lines of personal and commercial property and casualty insurance and reinsurance. In 2015, the company had $3.3 billion in gross premiums written - insurers' equivalent of revenue - and $355 million in net income.
Sompo will deploy Endurance's underwriting know-how for customers with global businesses, it said in a statement.
The deal will benefit Sompo in the longer term by allowing it to offer specialised insurance products in the domestic market, said analyst Koichi Niwa at SMBC Nikko.
"If Sompo goes abroad, gets solid know-how of insurance products, and brings it back to Japan, synergies will emerge."
Sompo said it will fund the deal with cash on hand. In August, it raised 200 billion yen ($1.95 billion) by issuing subordinated bonds, part of which can be counted as equity.
On Wednesday, Sompo's shares closed up 2.7 percent before the deal was confirmed. Endurance shares soared 35 percent on Tuesday on reports of the deal.
Citi Group and Morgan Stanley (NYSE:MS) acted as financial advisers for Sompo and Endurance, respectively. Sompo received legal advice from Shearman & Sterling LLP and Skadden, Arps, Slate, Meagher & Flom LLP provided external legal counsel to Endurance.
The United States is the world's largest market for both life and property-casualty insurers, where Japanese companies see opportunities to secure instant boosts to profit through acquisitions.
In other major U.S. deals announced last year by Japanese insurers, Meiji Yasuda Life Insurance Co [MEIJY.UL] acquired StanCorp Financial Group Inc for $5 billion and Sumitomo Life Insurance Co [SMTLI.UL] purchased Symetra Financial Corp for about $3.8 billion.
MS&AD Insurance Group Holdings Inc (T:8725) also announced a $5.3 billion acquisition of Britain's Amlin PLC, an underwriter in the Lloyd's of London specialist insurance market.
Sompo, formerly NKSJ Holdings Inc, bought Britain's Canopius Group Ltd, a Lloyd's of London insurance market player, for about $1 billion in 2013.
CEO Sakurada said future acquisitions were possible.
"(In Endurance) we've got a diamond in our hand," he said. "But if this alone isn't enough to capture growth in the U.S. market, we won't rule out further M&As."